Stiglitz on the (financial) cost of Iraq

The cost of the Iraq War could have underwritten Social Security for fifty years. This brings home one of the points Max Sawicky always made in the SS debate (in general to a brick wall). Although the headline amounts associated with these problems are scary, they are actually not all that much as a percentage of GDP. The Iraq War is a horrific waste of money, but I don’t think anyone would actually try and claim that it literally can’t be afforded. Similarly with the Medicare/Medicaid/Social Security nexus of funding costs; it’s absolutely clear that the productive capacity of the US economy can pay for these things, it’s just a question of whether there is political will to do so, or whether the government would rather spend the money on killing hundreds of thousands of people overseas for no very obvious benefit.

It’s not often that one gets to correct a Nobel Prize winner, so I will take the opportunity. Stiglitz is qutoed as saying that “Money spent on armaments is money poured down the drain”. This is actually the best case for armaments spending from an economic point of view. Most of the time, when armaments are used, they damage something valuable. If all the bullets fired in Iraq had been poured down the drain instead, the world economy would be massively better off, even allowing for the cost of cleaning up the pollution caused in the drain.

Three trillion dollars really could have solved a lot of world problems. For example, it would have funded a once-and-for-all offer to the entire population of Gaza, the West Bank and the UNRWA refugee camps of half a million dollars each to slope off and stop bothering the Israelis. That’s the sort of money we’re talking about here.

Re: …it would have funded a once-and-for-all offer to the entire population of Gaza, the West Bank and the UNRWA refugee camps of half a million dollars each to slope off and stop bothering the Israelis.

And: Or – more sensibly – it would have funded a considerable payoff to the Jewish colonists in Palestine to slope off to the US or Europe and stop ‘bothering’ the native arab population.

It could have funded an offer to the entire population of the West Bank settlements of ten million dollars each to move back to pre-1967 Israel.

It could have funded an offer to the entire population of the West Bank settlements of ten million dollars each to move back to pre-1967 Israel.

I only raised it as a joke but come on. Does anyone really think that if only those damned settlements went away, everything would be jakes? ‘Course it wouldn’t. The Palestinians would still be pissed off beyond measure at the entire existence of the State of Israel (particularly the 4.5m clients of UNRWA who believe, with decent reason, that said State is geographically located on land that used to be theirs). Hence my revolutionary “take this sincere apology and this cheque for $500,000 and fuck off, please” plan.

And since I´m in the mood for correcting both a Nobel Prize winner and a Timberite, I would like to add that one shouldn´t forget the role of military keynesianism in weapons spending.

Just the other day some guy told me he wondered why the Pentagon funded the development of a 100 seater airplane from Boeing. It happens that it fits so perfectly well in Boeing´s plans to compete with Embraer, Bombardier and the chinese in the niche market of regional aviation…

Is a Trillion a million million here? If so, that’s about $10,000 per American, man woman and child, or $44,000 per family (if 2.4 kids is right), which is about the median family income (source). Is my maths out, or does that mean that a five year war has taken close to an entire year of every American’s salary off them?

Re: the drain, your right about the damage to valuable things, but even neglecting that, its still not a drain. Its the military industrial complex which pockets the money. Socialised costs, privatised profits. Taking from the poor (well, not just the poor) and giving to the rich, in other words.

How about $500k AND everybody gives out as many visas as citizens who were either (i) killed in anti-Jewish purges since 1918 OR (ii) emigrated to Israel since 1918. First come, first served–you get $500k and a visa to somewhere else if you agree to leave.

Yes, it’s ethnic cleansing; that seems to work rather better than the alternatives in reducing violence.

I’m a little worried that this was asked and not really answered. The answer is that it is enormously greater.

“Welfare” spending (if by that you mean what used to be called “welfare” then AFDC, then whatever it is today), foodstamps, housing subsidies, Medicaid…all put together is still a small portion of the US’s budget. Do all these things together even hit 100 billion (US billion) a year? If they do, I bet it’s mostly from Medicaid.

Even liberals think that there’s a “large” amount of welfare spending in the US, when in fact it’s trivial. Completely eliminating the specific welfare program (whatever AFDC is now) would do little to balance the budget. This is why the specter of the “welfare queen” has always been essentially racist. It’s not a fiscal matter, it simply isn’t a large portion of the US’s budget.

But I’d bet that the average conservative on the street would say that it accounts for, say, 30% of the US budget, with, say, 20% military and and 30% Medicare/Social Security. And 10% space exploration and the remaining 10% being miscellaneous. That’s grossly wrong, but matches the rhetoric of the last thirty years from the right.

I mean, look, most Americans think that anyone can get welfare in the form of a monthly cash payment from the government…just because you are poor. Anyone: a healthy, young, adult single male with no children, for example. People really believe that if someone is “too lazy to work”, the government will give you enough money to live, indefinitely.

The gap between the rhetoric and popular opinion about welfare and the reality of it is incredibly huge.

The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.

How is that supposed to work?

Normally, you think of deficit-financed war spending producing higher aggregate demand and adverse movement in the balance of trade, leading to a decline in the exchange rate and higher inflation. All of which would, all else equal, put pressure on the central bank to raise interest rates, not lower them — this is exactly what happened later in the Vietnam era, IIRC.

In other words, if the government is competing with the household sector for loans, that should make a speculative asset bubble less likely, not more so.

re Stiglitz: “The regulators were looking the other way and money was being lent to anybody this side of a life-support system,”

Yes … Bush single handly corrupted not only the Fed, but also the OCC. He also managed to cause thousands of mortgage brokers to spring up out of nowhere and find people this side of life-support.

Does this have anything to do with Iraq? YES! Bush got the coalition of the less than willing to at least fund a portion of the war … I thank every publicly owned municipal bank in Germany, insurance companies in Japan, and a host of UK banks for helping to underwrite the property boom of 2003-2007. I’m sorry they won’t get their money back, but that’s why investing involves risk.

“For example, it would have funded a once-and-for-all offer to the entire population of Gaza, the West Bank and the UNRWA refugee camps of half a million dollars each to slope off and stop bothering the Israelis. “

I can’t imagine anyone, least of all anyone in a war zone or refugee camp, passing up $500,000, with or without apology, particularly if the deal were sweetened with a visa to some more desirable locale. Money, and the comforts and security it buys, is what most normal human beings want: cheap intangibles like ideology and principle, and even revenge, are nothing but consolation prizes.

We’ll never get to verify this one empirically, but I’d bet $500,000 (the bulk of my 403b) that at least 90% of the Palestinian population would take the money and run. Heck, I’d bet that most of those would take $500, a green card, and a one way ticket to Baltimore. Or even $50, a green card, and a one way ticket to Jersey City.

No, it’s just that he is a left-wing Zionist. You’ll notice, for example, that he says that Oslo had to be tried, just to check it off the list. That outright expulsion would not be accepted by the international community at this time, so they should wait for an opportunity. That’s, I think, what left-wing Zionism is. I haven’t read TNR for years now, but I believe they probably fall into the same category.

Normally, you think of deficit-financed war spending producing higher aggregate demand and adverse movement in the balance of trade, leading to a decline in the exchange rate and higher inflation. All of which would, all else equal, put pressure on the central bank to raise interest rates, not lower them—this is exactly what happened later in the Vietnam era, IIRC.

You might have point here. It seems safer to say that the combination of low rates plus war made the crisis worse, not that the war caused the lower rates. On the other hand, the rate cuts were a direct response to fears of a weakening economy after 9/11 and during the war. If you view Fed behaviour as a real choice, not an automatic response to the situation, the cuts were an effort to (temporarily) shield the American public from the costs of the war.

It looks as if Asian and mid-east buying of government bonds postponed the effects you describe.

23: Oh, yes, easily. A budget for a manned Mars mission is around $100-200 billion. That’s to put four people on the surface for nine months. If you’re buying in bulk, the trip cost should go way down – since much of it is R&D and so on anyway.

I would love to hear a speech that hammers on the cost issue. It’s $10 billion a month, for pete’s sake. Some politician should be able to stand up and say “Here’s what I’d do once we were out of Iraq. January – everyone gets a $150 check in the mail. February – $10 billion into food for impoverished children. March – another check! April – $10 billion research into alternative energy to make us oil-independent. May…” and so on.

I am still a bit unclear about the main parts of this $3 trillion figure. The interviews mention unaccounted and future costs, such as medical costs, but also effects of the higher oil price.

If most of the ‘extra’ cost comes from the first, this is a relatively sound figure I guess. But if most of it comes the second, it will rely heavily on the part of the higher cost attributed to the war, the estimates of its cost to the economy, etc. It would make the number a lot less comparable to the direct costs of building houses or paying teachers.

Or – more sensibly – it would have funded a considerable payoff to the Jewish colonists in Palestine to slope off to the US or Europe and stop ‘bothering’ the native arab population.

translate into “850,000 Jews who were ethnically cleansed from Arab countries … are life unworthy of life”? I’d like your fill all the intermediate steps in your deduction, just outta curiosity. Thanks, man.

The 700 billion or so already spent in Iraq is enough to give every family there around $100,000 US.

I think we should spend that much, right now in restitution. Plus another trillion for relocating (ethnic cleansing) the population into three states.

(Although 3 trillion sounds too high. Dunno how Mr. Stiglitz arrived at it but I think you should discount future costs VERY heavily, more than some cost-of-money-interest-rate adjustment, to reflect the uncertainty of the current course compared to the costs of counterfactual histories (i.e., we don’t invade, but things still suck).

“I’m a little worried that this was asked and not really answered. The answer is that it is enormously greater.”

You might be right, but I’m not sure about “enormously”. Medicaid is a roughly $300 billion a year program.
(http://en.wikipedia.org/wiki/Medicaid)
And Medicaid appears to be some 50% of total welfare spending.
(http://encarta.msn.com/media_461520381/u_s_welfare_spending.html)
I wouldn’t want to try and have to stand behind those numbers, they’re just the product of a couple of minutes googling.
But at $600 billion a year over five years, looks like the welfare spending is comparable to, rather than “enormously” lower than the $3 trillion cost of the war.

Regarding Otto, Abb1, et al., what is curious about this imaginary alternative expenditure to either buy the Palestinians out so they can leave the area to the Israelis (Jews only, I suppose), or to pay off the West Bank settlers/colonists to leave that area to the Palestinians, is that no one has asked the question, “Why should the US even contemplate giving cash settlements to either side?” Israel has said they would consider reparations when there is a responsible negotiating party to deal with, and then working very hard to make sure no Palestinian group ever meets their criteria. And though we caused most of this mess by arming one side to the teeth, it would be too much to ask that we buy out either side, however fanciful the notion is.
Though Judaism has been around longer than Islam, that doesn’t mean that other peoples weren’t occupying the same areas contemporaneously, and mostly at peace, for at least 4,000 years, before Abraham, in fact. I hesitate to call them Arabs, though, more like competing wandering tribes. And what about the Egyptians?

Lest anyone accuse me of anti-semitism, note that I favor a one-state system, with no laws respecting any religion, except to ban amplified muezzins,sharia and orthodox laws, including burkas, hibjabs, headscarves, purdah, and the like. Fat chance.

More on this story here. Interesting statistic – The US has now spent three times per Iraqi what they spent per European on the Marshall Plan. Obviously, to far less effect. If anyone is still interested in the largely forgotten war in Iraq, 721 people, including 636 civilians, were killed last month. Still a complete hell disaster there. Anyway, whats on TV tonight.

Also, looks like the cost of getting the Palestinian’s to “slope off and stop bothering the Israelis” is getting cheaper by the day, as they are slaughtered. At least this killing isn’t being completely ignored however. Well, not everywhere, anyway.

It is silly to look at the costs without looking at the benefits. Stiglitz says:

“The second criticism – which we admit – was that we only look at the costs, not the benefits. Now, we couldn’t see any benefits. From our point of view we weren’t sure what those were.”

This implies that we have literally nothing of value out of this enterprise, which is rediculous. It is reasonable to argue that the costs outweigh the benefits (in this case enormously). It is reasonable to say that even if a careful cost-benefit analysis showed a net plus (clearly not the case here), we still should not have done it for moral reasons. It is not reasonable to say that all of this cost is equivalent to burning money, which is what you’re doing if you don’t count “benefits.”

Net costs is the right measure here if you want to talk about what we could have spent “the money” on if not for this war.

Here are some examples of “benefits” of the war:
– We now have soldiers who are much more highly-trained for counterinsurgency. This training is worth something.
– We have done a bunch of R&D, from which we will benefit in the future, even in the civilian technology sector.
– Our dead soldiers will not collect medicare or social security benefits. (This is why cost-benefit analysis is grotesque when applied to a war; Stiglitz and Bilmes started it, and we must count this type of thing if we want to imagine what we could have spent “the money” on if not for the war; clearly any money spent saving sodiers’ lives after they are wounded is worth it no matter what this type of analysis says.)
– The war has contributed to higher oil prices, resulting in some reduction in greenhouse gas emissions, and likely spurring some additional R&D that will contribute to our post-oil future.
– Some of the U.S. government spending on the war and its aftermath will come from taxes that would otherwise have been spent on positional goods by rich American individuals; such positional goods also have zero social value.